Communication from the European Commission on several aspect of Article 13 of the Audiovisual Media Services Directive

  1. Background

In July the European Commission issued a communication about Article 13 of the Audiovisual Media Services Directive (the “AVMSD”) providing obligations for on-demand audiovisual media service (“VOD”) providers to program and invest in European works. Mandatory exemptions from these obligations are provided for companies with low turnover or low audience, to ensure that the obligations relating to the promotion of European works do not undermine market development and do not inhibit the entry of new players into the market.

The communication of the Commission provides non-binding guidelines regarding (i) calculation of the share of European works in the catalogues of VOD providers and (ii) definition of low turnover and low audience in the context of the above-mentioned exemptions.

  1. Calculation of the share of European works in the catalogues of VOD providers

For linear audiovisual media services, where only a limited number of programs can be broadcast at the same time, the programming obligation share is calculated based on transmission time.

The same metric cannot be used for VOD services, as the inclusion of a certain program in a VOD catalogue depends on its popularity. In light of this, the Commission considered it more appropriate to calculate the share of European works in catalogues based on titles and not on transmission time.

Moreover, the Commission considered the calculation by titles more neutral with regard to the choice of programs to be included in catalogues by VOD providers — as using calculation by duration could create an incentive for VOD providers to favor European works of long overall duration in order to hit the 30% share more easily — and less burdensome for VOD providers. Indeed, VOD providers are more likely to keep track of the number of European titles out of the total number of titles available rather than the total viewing time of European works out of the total viewing time of all the works included in their catalogues.

Finally, calculation by titles facilitates monitoring and oversight by the relevant national authorities since titles are easier to track than total viewing times.

  1. What constitutes a title

The Commission established that, in case of feature and TV films, every film should be considered to constitute a title in a catalogue. The various films in a franchise — to be understood as a succession of related films sharing the same fictional universe (for instance, the Harry Potter, Star Wars, or Fast and Furious, etc.) — should be considered separate titles in a catalogue.

The identification of what constitutes a title is more complex when it comes to TV series or other formats presented in a serialized way (e.g., episode by episode). Therefore, since episodes of TV series are often grouped by their seasons, the Commission established that one season of a series should correspond to one title. Indeed, the work carried out to produce one season of a series is very similar to the work normally required to produce a film. For instance, a season of a series is usually the result of a single and continuous creative effort made by the same group of authors or audiovisual professionals, with a single budget and over a unitary period of time, and release on the market and related promotional activities often concern one individual season. Upon request of the VOD provider, national authorities could decide to give greater weight to audiovisual productions with higher production costs compared to the other items in the catalogue (e.g., an episode that has a duration and production cost similar to those of a film).

  1. Calculation per national catalogues and temporal dimension

Furthermore, in the case where a VOD provider has multiple national catalogues with a different composition for each depending on the targeted national market, the appropriate share of European works must be reached in each of the national catalogues offered by the multi-country VOD provider. This approach will ensure that viewers in every Member State where the provider offers a national catalogue have the required exposure to European works, and it is also likely to incentivize the circulation and availability of European works across the Union. The country of origin is entitled to monitor the national catalogue.

Lastly, the actual share of European works in VOD catalogues can vary based on new content added to the catalogue. In light of this, in monitoring compliance with Article 13, Member States are free to decide the point in time when compliance with the share must be met (i.e., at all times or on average over a pre-determined period).

  1. The definitions of low turnover and low audience

The Commission has clarified the concepts of low turnover and low audience to be used as the basis for the mandatory exemptions from programming and investment obligations.

The threshold for low turnover may be understood in the context of the concept of a microenterprise (i.e., a company with total annual turnover not exceeding €2 million). However, the Commission pointed out that the determination of low turnover depends on the size of the audiovisual market in each Member State: in markets whose size is on the order of a few million euros, microenterprises may have a significant market presence. In such cases, Member States may determine lower turnover thresholds, provided they exempt enterprises having a share of less than 1% of the overall revenues in the national audiovisual market concerned.

With regard to the concept of low audience, the Commission determined that the most appropriate method to measure the audience in the VOD sector is to base it on sales of the services, using the number of users/viewers as an index. More specifically, the audience may be determined on the basis of the number of active users, for example, the number of users paying for Subscription Video on Demand (SVOD), the number of unique customers/accounts used for the acquisition of works for Transactional Video on Demand (TVOD), and the number of unique visitors for Advertising Video on Demand (AVOD). Since sales represent a good indicator of the audience and reflect the market position of the services concerned, providers with a low number of active users are deemed not to have a significant presence in the market, thus justifying application of the exemption.

Moreover, the Commission considered it appropriate, in principle, to exempt from the obligations those providers with an audience share of less than 1% in the Member State concerned. Conversely, for linear services, given that they are typically domestic in nature, the Commission provided that only cross-border channels with an individual share below 2% in a given targeted Member State are deemed to have a low audience.

Lastly, the Commission pointed out that in some Member States, depending on the size of the audiovisual market, it may be apt to apply investment obligations to VOD providers with turnover lower than €2 million or with audience shares of less than 1%, as well as to cross-border linear services with audience shares below 2%. As a result, the Commission provided the Member States with the opportunity to decide to apply lower thresholds in justified cases, in line with their cultural policies.

Furthermore, the Commission invited Member States with large audiovisual markets to consider exempting enterprises with total turnover above €2 million as well by setting a higher threshold or at least making them subject to less onerous investment obligations.

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